Fair Isaac & Co. Credit pioneered a credit scoring method that has become widely accepted by lenders as a reliable means of credit evaluation, helping determine the likelihood that credit users (i.e. borrowers) will pay their on their debts.
A borrower is a party which seeks or has secured the temporary use of monetary funds or a nonmonetary object under the condition that the same or its equivalent will be returned, and in many instances with an interest fee. A lending agent is a party which gives or allows the temporary use of monetary funds or a nonmonetary object on the condition that the same or its equivalent will be returned, and in many instances with an interest fee. A lending agent can be a private organization, a sole individual, or a government agency.
A FICO score is generated from this credit scoring method which condenses a borrower's credit history into a single number. Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which approximate a borrowers future credit performance. Developers of the score-model find predictive factors in the data that can indicate future credit performance. For instance, predictive factors such as the amount of credit used versus the amount of credit available, length of time at a present employer, and negative credit information such as bankruptcy can be revealed in a borrowers credit history.
There are typically three. FICO scores that are computed by data provided by each of the three most prevalent credit bureaus Experian, TransUnion, and Equifax which typically provide FICO scores which lenders rely on to determine credit worthiness. The problem is that in many parts of the world, collectively known as the emerging markets a borrower's credit history cannot be determined because the lending infrastructure does not exist. For example, in the Philippines, due to a lack of a credit rating infrastructure, there is restricted access to microfinance loans and extraordinarily high interest rates as well as societal lack of trust in financial and political infrastructure. Currently, Philippine citizens depend on remittances from overseas family borrowers in order to obtain necessities. These funds do not adequately cover other important expenses such as education, healthcare, and human capital investments. While demand for credit by Filipino consumers is growing at a rate of 10% per year, the banking institutions do not sufficiently supply. Only 10% of all lending by banks is dedicated to these consumer loans. Therefore, traditional lending models do not adequately provide capital to those who demand it in emerging markets. As a result, microfinancing has evolved to enable access to however little credit is available for individuals or small organizations in these emerging markets. (Note that as used herein, the terms “microfinancing,” “lending,” “loan application process,” and “credit application process” and are generally interchangeable.)
Microfinancing can be a quick and easy way to access small loan size. It involves lending amounts typically on the order of less than $25 to individuals or small organizations whom lack the collateral or the capacity to prove to traditional banks that they are able to repay a loan. Traditional financial institutions are hesitant to develop services to provide microfinancing because the costs of processing small loans and the risks involved in lending to such individuals or small organizations. The recipients of microfinancing are regarded as a risky client group because they have a limited financial track record. Therefore, microfinancing typically relies on non-traditional aspects of collateral requirements and unconventional assessment of credit worthiness.
The very parts of the world that consume microfinance have seen a broad adoption of social networks. Social networking services allow participants to interact with online communities who share interests and/or activities, or who are interested in exploring the interests and activities of other clients. Participants of social networking services may create a list of friends representing other participants of the service with which the participants desire to interact, e.g., by sending and receiving emails or instant messages, sharing content such as files or photographs, publishing information, posting comments to a blog site, and so forth.
With the rise of the Internet and the growth of electronic commerce (i.e. e-commerce), the social networking infrastructure has become immensely popular. Many email services have even graduated from the traditional purpose of facilitating electronic communication to capturing the connections between participants' social interactions within the service such as by sending and receiving emails or instant messages, adding contact information in the email address book, and so forth.
When the connections between participants of online social networking services are mapped, a social networking graph results (herein after referred to as “social graph”). Social graph is a term ascribed to scientists working in the social areas of graph theory. Coupling the abstract concept from discrete mathematics of a graph with the relationships between individuals online, the social links a person has can be traced through the Internet activity. The social graph is geared toward the relationships a person has online as opposed to the relationships in the real world, which describes the concept of a social network.
The social graph makes it possible to identify tightly connected groups of participants within the online social network services (e.g., the more participants held in common the more tightly connected two participants may be). The activity of a participant on the social graph can be regarded as the social footprint of that participant.
Social networking online will become essentially ubiquitous as the portable electronic devices (e.g., wireless electronic communication devices, notebook and laptop computers, personal digital assistants (PDAs), mobile telephones, sometimes called mobile phones, cell phones, cellular telephones, multifunctional mobile devices, Smartphones, etc.) continue to expand their reach globally. The more a person participates in social networking services, the bigger the person's online social footprint becomes. In the context of determining a person's credit worthiness (e.g. financial stability, debt level, identity verification, residency status, past behavior in repaying debts, character (e.g. adherence to responsibilities, degree of reliability, level of honesty displayed, reputation, etc.), and so forth, the information about a person through social media profiles and the activity on the social graph provide open and available information to be used in a risk analytic data set from which credit worthiness can be derived. Such information, coupled with demographic data and information a loan application provides, can be utilized not only to verified a person's identity, but also perform a background check, assign a credit score and determine the possibility of defaulting.
The significance of social networks and the importance placed on social standing is unique aspect of the culture in emerging markets. More so than in the West, social standing is often the impetus to following rules. New trends in the elevated importance of online reputation and widespread social and mobile media adoption show promising success for future innovative technology systems.
Accordingly, there exists a need in the art for development of new concepts in electronic commerce systems that will enable an Internet based loan and credit system described herein.